LFP032 – International Remittances in the Fintech Age with Alix Murphy WorldRemit

WorldRemit is one of the world’s leaders in the key sector of remittances. Remittances, to cut to the chase, is largely the province of often poor migrant workers sending their money home. To date this has been dominated by large players such as Western Union who can charge fees of 10-20%. Thus we have the obscene sight of some of the poorest people in the world being charged the highest money transfer rates in the world.

Why is this the case? Is this pure capitalist theft or are there some structural challenges and processes which absorb much of the margin? What can Fintech do about it? What is WorldRemit offering that incumbents are not?

In a Fintech/VC world where the media narrative is all too often about terms centred purely on – lets face it greed and flood-up capitalism [hello the “unicorn” word] – it is nice to be able to discuss a firm which is aiming to empower the poorest users of the financial system.

Generally on these shows I take a “vertical” slice and have a CEO of a company to talk about the issue. Nothing wrong and plenty right with that. In this case though I am taking a more horizontal approach. Alix Murphy, Senior Mobile Analyst, has been in mobile money for many years and shares many stories about mobile transfers in the developing world as well as WorldRemit’s business.

Topics discussed include:

– Alix’s background in international development for the US administration, the Grameen Foundation and Aga Khan foundation

– Alix’s first experiences of the impact of mobile money in Uganda (and how that is still ahead of what can be done in the “developed world” today) – cool case study 🙂

– the international organisation for migration says that 300m people move abroad for work; the remittances market is estimated to be $600bn per annum

– the role of remittances in the lives of the hundreds of millions of (extended) families

– migrants have been over-charged; the global average fee is something like 6-8%; to Africa/SE Asia it can be 12% to 20%

– some of the reasons for this relating to the previous cost-intensive “offline” business model (95% are cash based)

– ways of reducing the cost

– costs which can be reduced ten-fold by WorldRemit

– WorldRemit as a partnership organisation working with banks, telcos and cash pick-up agencies [note the spread beyond what is usually considered as the financial system]

– percentage fees/flat fees/minimum fees

– KYC, working with a company that does identity verifications

– the role of sub-providers to Fintechs (and the potential for growth in this (esp in areas like KYC which are a must-do rather than core activity for most Fintechs)

– the challenges of AML in the remittances marketplace – Ismail Ahmed, the founder of WorldRemit was a compliance adviser for the UN’s East Africa compliance program before founding WorldRemit (as well as being from Somaliland); having the best AML processes has always been at the core of WorldRemit

– AML in essence is about stopping “bad guys” channeling money; however there are a number of problems about this; who defines the “bad guys”?; what’s the knock-on effect of definining “bad guys” on hundreds of millions of “good guys”, the poorest people in the world?

– the “western” politics of AML – especially around who defines who is a “terrorist” [Britain, when it was top-dog, once labelled Ghandi (now seen as a pre-eminent man of peace) as a terrorist]

– I reference a great rant by leading American Muslim scholar Sheikh Hamza Yusuf [Youtube “Game of Wars”] about the need for a clear definition; he quotes many cases where an act of terror is labelled as being due to a “madman” and others where it is “Islamic Terrorism”; this in itself as one side-effect means that migrant workers from some of the poorest countries end up paying such high fees

– a practical example of what could be perceived as a system tilted in a “religionist” fashion being Peter Oborne’s recent BBC program HSBC, Muslims and Me about HSBC closing bank accounts of several leading British Muslims and the role of banks AML (/”anti-terrorism”) processes in that; the sub-contracting to WorldCheck – a database that 49/50 of the largest banks use (who has heard of that and who says it is true/fair/accurate/up-to-date (?!)); whilst even if one person alone were Muslim this would be a cause for concern, putting this in context wikipedia says that getting on for one-quarter of the world’s population is Muslim

– the “developing world” politics of AML – many poor countries have been war-torn by civil war; once again depending on who is currently on top, terrorism is defined in a certain way against a certain (often ethnic) group

– a fascinating case study of the differing attitudes to mobile money and (de facto) KYC/AML between Somalia and Somaliland

– in many cases the developing worlds KYC/AML processes are ahead of ours

– the data that the telcos have is also far superior to that of the banks

– WorldRemit’s focus on:

… mobile-mobile remittances (they are the only online player to be focusing on this)

… partnerships to expand [they currently can send from 50 countries to 120 countries]